Apple and the ‘cheap iPhone’ debate

Pundits, as is their wont, are telling successful companies how to do business. Apple is their favourite, as any comment about Apple gathers global media attention. Such comment is usually speculation quoting ‘people close to the situation’, suppliers in Asia or just a hunch. The myriad tech, mainstream blogs and news media then take over as news of Apple guarantees page views, eyeballs and invites trolls in the comments section. A negative comment or news is even better as the word loves to see the mighty fall and Apple tops that list among a large audience. So a slow news day in the tech world means there is nothing negative to write about Apple.

In this context comes the news about ‘Apple planning a cheaper phone’. The pattern is evident as it fits in with the narrative of ‘how the mighty have fallen’ as it would be seen as Apple having been forced to become a follower. My view on this: Apple will never do anything which is not part of their DNA. And making cheap stuff is not in their DNA. Neither is chasing market share at the cost of margins. Does it mean that a new phone priced less than their flagship phone is ruled out? No. Currently aside from the iPhone 5, they offer iPhone 4S and 4. In the US, since the phones are subsidised, the older models are available at a low contract price. But that’s not the case in markets like India. While the iPhone 5 is available, someone seeking the earlier versions (say 4S) may find it faring poorly on tech specs (screen size being one) compared to other ‘latest’ phones from others. So, technically there is scope for another phone which is perhaps one notch lower than the flagship iPhone. But will Apple compromise on components and user experience for it? Unlikely.

Tim Cook has said in the past that “one thing we’ll make sure is that we don’t leave a price umbrella for people”. In a brilliant article, ‘The reason for the iPad Mini‘, Ryan Jones explains:

A price umbrella is when a company with dominant market share maintains high prices, leaving an opening for new competitors to enter at lower price points. In the case of the iPad, the price umbrella until recently was at $499. Someone could enter that market at lower prices and exhibit classic disruption to push them out from the bottom up.

The iPad Mini’s margins are relatively lower for Apple, as said in their Q42012 earnings call. But its still a healthy one. I think the same rule will apply for the iPhone too. If they can make a less expensive iPhone with the build quality and features that meets their standards and yet gives them a decent margin, they would. It will never be about ‘lets just get a cheap phone out there as they are selling in huge volumes in India & China’.